From 666 to 2,000... As America's S&P 500 hits new heights - should you invest in the US stock market?

Five years ago, in the midst of a global financial crisis, the US stock market sat at an ominous marker: 666.
This week it passed the 2,000 level for the first time ever – up 200 per cent since those depths.

With the stock market at a record high, investors are wondering whether they have missed the boat.

Experts say that investing at the top of the market is one of the worst mistakes you can make – buy low, sell high is the adage. But optimists are eschewing this advice in the belief that there is more growth to come.

High, higher? This week American S&P passed the 2,000 level for the first time ever

James Thomson runs the Rathbone Global Opportunities fund. His remit is to invest across the globe, but he has been increasingly positive about the US of late.

In the past 18 months he has doubled his exposure to the region – 65 per cent of the fund’s £451million of assets is now invested there.

The Federal Reserve has pumped money into the economy since the financial crisis and the country was early to emerge from the murky depths of recession.

Results this week showed that strategy seems to be working – the economy had grown at an annual rate 4.2 per cent in the second quarter of 2014.
Housebuilding is picking up, unemployment is falling and consumers are starting to feel confident again.

The dollar is getting stronger, inflation is staying low and company profits are booming.
At the same time the US has benefited from a slowdown in emerging markets.

These countries – such as Brazil, Turkey, and India – have had a volatile 2014, which has led to many investors move back to the relative safety of developed markets.

Thomson says that is good news for the US. ‘If the emerging market economies are slowing that means lower food and energy prices in the US,’ he says.
He is looking at sectors that stand to benefit from these trends. He likes consumer companies such as Amazon, Tiffany and Facebook.

Shale oil and gas companies are also looking strong because fracking has taken off in the States. Dominic Rossi, head of equities at Fidelity, says a number of factors suggest there is no reason the strong run can’t be sustained.

Corporate profits are high and with US companies becoming increasingly global, overseas earnings should also continue to rise. As well as that, the US is a leader in innovation and technology. But there are still US-sceptics out there, who believe the S&P has already gone higher than it should.

For those concerned about investing in the market when it has just reached a record high, looking at a smaller companies fund could be a solution.

The Threadneedle American Smaller Companies fund has more than doubled investors’ money over the past five years – it would have turned £1,000 into £2,119 in that time.

Managed by Diane Sobin, the fund looks for long-term value in companies that are at the beginning of a steep growth trajectory.
Sobin particularly likes energy companies, which are benefiting from an ‘industrial renaissance’, with increased construction and an energy revolution.

She also likes the health care sector, including pharmaceutical firms as well as services companies and hospitals which are set to profit from the increasing availability of healthcare as a result of Obamacare.

Of course, if you think the S&P 500 has further to go, a cheap tracker fund is one option. Fidelity and Vanguard offer US funds starting at 0.08 per cent and 0.07 per cent respectively and these will just follow what the main stock market is doing.

Going in to a market just as it has hit a record high could be a risky time to invest, but the majority of managers are bullish on the region.

The US has a lot going for it at the moment and it seems there could be several more years of success to come.

Thomson says: ‘A well-known investment strategy is run the winners and cuts the losers. That tends to work for me and the US looks like a winner right now.’